What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-01 · 158 added, 217 removed, 286 unchanged (57% of the section changed)

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Concurrent with the conversion, the Company contributed an additional 1,920,000 shares of its common stock and $4.8 million in cash to The Provident Bank Foundation, a charitable foundation established by the Bank.

The Company conducts business through its subsidiary, the Bank, a community- and customer-oriented bank currently operating full-service branches and loan production offices throughout northern and central New Jersey, as well as Bucks, Lehigh and Northampton counties in Pennsylvania.

The Bank also provides fiduciary and wealth management services through its wholly owned subsidiary, Beacon Trust Company and insurance services through its wholly owned subsidiary, SB One Insurance Agency, Inc.

Established in 1839, the Bank is the oldest New Jersey-chartered bank in the state.

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The Company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets.

Core deposits, consisting of savings and demand deposit accounts, are generally a stable, relatively inexpensive source of funds.

Core deposits, consisting of savings and

demand deposit accounts, are generally a stable, relatively inexpensive source of funds.

At December 31, 2021, core deposits were 93.8% of total deposits.

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The acquisition was accounted for under the acquisition method of accounting.

Under this method of accounting, the respective assets acquired and liabilities assumed were recorded at their estimated fair value.

The excess of consideration paid over the estimated fair value of the net assets acquired totaled $22.4 million and was recorded as goodwill.

Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax.

The excess of consideration paid over the estimated fair value of the net assets acquired was recorded as goodwill and initially totaled $22.4 million.

The calculation of goodwill was subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available.

The Company updated certain estimates used in the purchase price allocation, primarily with respect to the marginal tax rate of deferred tax assets (“DTA”).

As a result, the fair value of the net assets acquired decreased by $1.4 million.

The impact of these measurement period adjustments increased goodwill to $23.9 million.

The Company has finalized the purchase price allocation and these measurement period adjustments are recorded as current period adjustments in accordance with ASU 2015-16.

Goodwill is not deductible for tax purposes and will be evaluated annually for impairment.

Acquisition of Tirschwell & Loewy, Inc.

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The acquisition agreement limits the total additional payment to a maximum of $11.0 million, to be determined based on actual future results.

Total cost of the acquisition was $21.6 million, which included cash consideration of $15.0 million and contingent consideration with a fair value of $6.6 million.

Total cost of the acquisition was $21.6 million, which included cash consideration of $15.0 million and

contingent consideration with a fair value of $6.6 million.

Tangible assets acquired in the transaction were nominal.

No liabilities were assumed in the acquisition.

The goodwill recorded in the transaction is deductible for tax purposes.

The goodwill recorded in the transaction was deductible for tax purposes.

In the fourth quarter of 2019, the Company recognized a $2.8 million increase in the estimated fair value of the contingent consideration liability.

While performance of the acquired business has been adversely impacted at December 31, 2020 due to worsening economic conditions and declining asset valuations attributable to the COVID-19 pandemic, asset valuations improved in the fourth quarter of 2020 and management has not identified a reduction in assets under management due to a declining customer base.

As a result, the $9.4 million fair value of the contingent liability was unchanged at December 31, 2020, from December 31, 2019, with maximum potential future payments totaling $11.0 million.

In May of 2021, a $4.0 million earn out was paid as certain acquisition agreement limits were satisfied in year two of the acquisition.

Additionally, in September of 2021, as a result of declining asset valuations, a $3.4 million reduction in the contingent consideration related to possible future earn-out provisions was made.

As a result, the estimated fair value of the contingent consideration liability at December 31, 2021 was $2.0 million.

Critical Accounting Policies

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• Valuation of deferred tax assets

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with the current expected credit loss (“CECL”) methodology.

It also applies to off-balance sheet credit exposures, including loan commitments and lines of credit.

The adoption of the new standard resulted in the Company recording a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures.

The adoption of the standard did not result in a change to the Company's results of operations upon adoption as it was recorded as an $8.3 million cumulative effect

adjustment, net of income taxes, to retained earnings.

The adoption of the standard did not result in a change to the Company's results of operations upon adoption as it was recorded as an $8.3 million cumulative effect adjustment, net of income taxes, to retained earnings.

The allowance for credit losses is a valuation account that reflects management’s evaluation of the current expected credit losses in the loan portfolio.

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The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist.

The respective quantitative allowance for each segment is measured using an econometric, discounted PD/LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to an external economic forecast.

The respective quantitative allowance for each loan segment is measured using an econometric, discounted PDR/LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to an external economic forecast.

Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis.

Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level effective interest rate.

Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level effective

interest rate.

The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

management has a reasonable expectation at the reporting date that a troubled debt restructuring (“TDR”) will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date.

Qualitative considerations include limitations inherent in the quantitative model;

portfolio concentrations that may affect loss experience across one or more components of the portfolio;

changes in industry conditions;

changes in the Company’s loan review process;

changes in the Company's loan policies and procedures, economic forecast uncertainty and model imprecision.

The Company considers qualitative adjustments to credit loss estimates for information not already captured in the quantitative component of the loss estimation process.

Qualitative factors are based on portfolio concentration levels, model imprecision, changes in industry conditions, changes in the Company’s loan review process, changes in the Company’s loan policies and procedures, and economic forecast uncertainty.

Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses.

Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation and have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled.

Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation.

The segments have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled.

As of December 31, 2021, the portfolio and class segments for the Company’s loan portfolio were:

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or which may be identified through the Company’s loan review process.

Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is at least $1.0 million, or if the loan was modified in a TDR.

When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the

reporting date, adjusted for selling costs as appropriate.

Generally, the Company only evaluates loans individually for impairment if the loan is non-accrual, non-homogeneous and the balance is at least $1.0 million, or if the loan was modified as a TDR.

For all classes of loans deemed collateral-dependent, the Company estimates expected credit losses based on the fair value of the collateral less any selling costs.

If the loan is not collateral dependent, the allowance for credit losses related to individually assessed loans is based on discounted expected cash flows using the loan’s initial effective interest rate.

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The allowance for credit losses on a TDR is measured using the same method as all other impaired loans, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

As previously noted, in accordance with the CARES Act, the Company elected to not apply troubled debt restructuring classification to any COVID-19 related loan modifications that occurred after March 1, 2020 to borrowers who were current as of December 31, 2019.

Accordingly, these modifications were not classified as TDRs.

In addition, for loans modified in response to the COVID-19 pandemic that did not meet the above criteria (e.g., current payment status at December 31, 2019), the Company applied the guidance included in an interagency statement issued by the bank regulatory agencies.

This guidance states that loan modifications performed in light of the COVID-19 pandemic, including loan payment deferrals that are up to six months in duration, that were granted to borrowers who were current as of the implementation date of a loan modification program or modifications granted under government mandated modification programs, are not TDRs.

Loans that have been or are expected to be granted COVID-19 related deferrals or modifications decreased from a peak level of $1.31 billion, or 16.8% of loans, to $207.4 million, or 2.1% of loans.

This $207.4 million of loans consists of $9.1 million in a first 90-day deferral period, $51.3 million in a second 90-day deferral period, $121.2 million that required additional payment relief and $25.8 million that have completed their initial deferral periods, but are expected to require ongoing assistance.

Included in the $207.4 million of loans, $49.2 million are secured by hotels, $35.9 million are secured by retail properties, $30.4 million are secured by multi-family properties, of which $21.1 million are student housing related, $29.7 million are secured by residential mortgages and $4.9 million are secured by restaurants, with the balance comprised of diverse commercial loans.

For loans acquired that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans.

For loans acquired that have experienced more-than-insignificant deterioration in credit quality since their origination are considered PCD loans.

The Company evaluates acquired loans for deterioration in credit quality based on any of, but not limited to, the following:

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Management believes the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising unemployment or a protracted period of elevated unemployment, increasing vacancy rates in commercial investment properties and possible increases in interest rates in the absence of economic improvement.

As the impact of the COVID-19 pandemic continues to unfold, the effectiveness of medical advances, government programs, and the resulting impact on consumer behavior and employment conditions will have a material bearing on future credit conditions.

As the impact of COVID-19 continues to unfold, the effectiveness of medical advances, government programs, and the resulting impact on consumer behavior and employment conditions will have a material bearing on future credit conditions.

Any one or a combination of these events may adversely affect borrowers’ ability to repay the loans, resulting in increased delinquencies, credit losses and higher levels of provisions.

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Such estimates and assumptions are adjusted when facts and circumstances dictate.

In addition to the ongoing impact of the COVID-19 pandemic, illiquid credit markets, volatile securities markets, and declines in the housing and commercial real estate markets and the economy in general may increase the uncertainty inherent in such estimates and assumptions.

In addition to the ongoing impact of COVID-19, illiquid credit markets, volatile securities markets, and declines in the housing and commercial real estate markets and the economy in general

may increase the uncertainty inherent in such estimates and assumptions.

As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

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Although management uses the best information available, the level of the allowance for credit losses remains an estimate that is subject to significant judgment and short-term change.

Going forward, the impact of utilizing the CECL approach to calculate the allowance for credit losses on loans will be significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized.

Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings.

For the year ended, December 31, 2020, changing economic forecasts attributable to the COVID-19 pandemic and projected economic recovery led to provisions for credit losses and off-balance sheet credit exposures.

See Note 7 to the Consolidated Financial Statements and the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for more information on the allowance for credit losses on loans.

The CECL approach to calculate the allowance for credit losses on loans is significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecast utilized.

Material changes to these and other relevant factors creates greater volatility to the allowance for credit losses, and therefore, greater volatility to the Company’s reported earnings.

For the year ended December 31, 2021, the changing economic forecasts attributable to COVID-19 and the projected economic recovery led the Company to record a negative provision for credit losses, compared to an increase in the provision for the same period last year.

See Note 7 to the Consolidated Financial Statements for more information on the allowance for credit losses on loans.

The determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities and estimates of future taxable income.

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The Company did not require a valuation allowance at December 31, 2021 and 2020.

Accounting Pronouncements Adopted in 2020

In May 2019, the Financial Accounting Standards Board ("FASB") issued ASU No.

2019-05, “Financial Instruments - Credit Losses (Topic 326);

Targeted Transition Relief.” This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10.

The fair value option election does not apply to held-to-maturity debt securities.

Entities are required to make this election on an instrument-by-instrument basis.

ASU 2019-05 had the same effective date as ASU 2016-13 (i.e., the first quarter of 2020).

The adoption of this guidance had no impact on the Company’s consolidated financial statements.

In April 2019, the FASB issued ASU No.

2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments" which clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, recognition and measurement.

The most significant provisions of this ASU relate to how companies will estimate expected credit losses under Topic 326 by incorporating (1) expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) clarifying that contractual extensions or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured.

2019-04 is effective for reporting periods beginning January 1, 2020.

The adoption of this guidance had no impact related to Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments on the Company’s consolidated financial statements.

At January 1, 2020, a $1.3 million allowance for credit losses for off-balance sheet credit exposures was recorded related to extensions on construction loans and is reflected below in the ASU 2016-13 calculation.

In August 2018, the FASB issued ASU No.

2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements.

Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

2018-13 was effective for interim and annual reporting periods beginning after December 15, 2019;

early adoption was permitted.

Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date.

The adoption of this guidance had no impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments by a reporting entity at each reporting date.

The amendments in this ASU require financial assets measured at amortized cost to be presented at the net amount expected to be collected.

The allowance for credit losses would represent a valuation account that would be deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

The income statement would reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.

The measurement of expected credit losses would be based on relevant information about past events, including historical experience, current conditions, and a reasonable and supportable forecast that affect the collectability of the reported amount.

An entity will be required to use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.

Furthermore, ASU 2016-13 will necessitate establishing an allowance for expected credit losses on held to maturity debt securities.

This also applies to off-balance sheet credit exposures, which includes loan commitments, unused lines of credit and other similar instruments.

The amendments in ASU 2016-13 are effective for fiscal years, including interim periods, beginning after December 15, 2019.

Early adoption of

this ASU was permitted for fiscal years beginning after December 15, 2018.

The adoption of ASU 2016-13 involves changing from an "incurred loss" model, which encompasses allowances for current known and inherent losses within the portfolio, to an "expected loss" model (“CECL”), which encompasses allowances for losses expected to be incurred over the life of the portfolio.

The Company adopted CECL on January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet ("OBS") credit exposures.

Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be recorded with previously applicable GAAP.

The Company recorded a $7.9 million increase to the allowance for credit losses and a $3.2 million liability for off-balance sheet credit exposures, which resulted in an $8.3 million cumulative effect adjustment decrease, net of tax, to retained earnings.

With regard to regulatory capital, the Company has elected to utilize the five-year CECL transition, which gives the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay.

Accounting Pronouncements Not Yet Adopted

ASU 2020-04, "Reference Rate Reform (Topic 848)" ("ASU 2020-04") provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks.

For transactions that are modified because of reference rate reform and that meet certain scope guidance:

(i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized;

and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts.

ASU 2020-04 also provides numerous optional expedients for derivative accounting.

ASU 2020-04 is effective March 12, 2020 through December 31, 2022.

An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.

Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

The Company anticipates this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than the extinguishment of the old contract resulting in writing off unamortized fees/costs.

In addition, in January 2021 the FASB issued ASU No.

2021-01 “Reference Rate Reform — Scope,” which clarified the scope of ASC 848 relating to contract modifications.

The Company is evaluating the impacts of this guidance and has not determined whether LIBOR transition and this guidance will have material effects on the Company's business operations and consolidated financial statements.

Analysis of Net Interest Income

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(3) Net interest income divided by average interest-earning assets.

(4) The previously reported average balances of the interest bearing cash and non-interest bearing cash for the years ended December 31, 2020 and December 31, 2019 were recalculated.

These recalculations resulted in the previously reported net interest margin of 2020 changing from 3.09% to 3.05%, while there was no change to the previously reported net interest margin of 2019.

Rate/Volume Analysis.

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Net interest income $ 55,683 $ (2,230) $ 53,453 $ 47,678 $ (33,081) $ 14,597

There were no out-of-period items and/or adjustments that had a material impact on the rate/volume analysis for the periods aforementioned in the table above.

Comparison of Financial Condition at December 31, 2021 and December 31, 2020

Total assets at December 31, 2020 were $12.92 billion, a $3.11 billion increase from December 31, 2019.

The increase in total assets was primarily due to $2.20 billion of assets acquired from SB One, which includes $22.4 million of goodwill and $10.0 million of other intangible assets, as well as an increase of $473.2 million related to commercial loans made under the Paycheck Protection Program ("PPP").

The Company’s loan portfolio increased $2.49 billion to $9.82 billion at December 31, 2020, from $7.33 billion at December 31, 2019, which included $1.77 billion of loans acquired from SB One and $473.2 million of PPP loans.

For the year ended December 31, 2020, loan originations, including advances on lines of credit, totaled $3.50 billion, compared with $2.83 billion for 2019.

The loan portfolio had net increases of $932.7 million in commercial loans, $880.2 million in commercial mortgage loans, $258.8 million in multi-family mortgage loans, $216.5 million in residential mortgage loans and $112.1 million in construction loans.

Total assets at December 31, 2021 were $13.78 billion, an $861.5 million increase from December 31, 2020.

The increase in total assets was primarily due to a $912.7 million increase in total investments and a $180.1 million increase in cash and cash equivalents, partially offset by a $241.3 million decrease in total loans.

The Company’s loan portfolio decreased $241.3 million to $9.58 billion at December 31, 2021, from $9.82 billion at December 31, 2020, despite strong originations, as prepayments, including Paycheck Protection Program ("PPP") loan forgiveness, were elevated.

Total PPP loans outstanding decreased $378.3 million to $94.9 million at December 31, 2021, from $473.2 million at December 31, 2020.

Excluding the net decrease in PPP loans, loans increased $137.0 million to $9.49 billion at December 31, 2021, from $9.35 billion at December 31, 2020.

For the year ended December 31, 2021, loan fundings, including advances on lines of credit, totaled $3.52 billion, compared with $3.50 billion for 2020.

Originations under PPP programs totaled $208.7 million and $397.8 million for the years ended December 31, 2021 and 2020, respectively.

Excluding the net decrease in PPP loans, during the year ended December 31, 2021, the loan portfolio had net increases of $368.7 million in commercial mortgage loans and $141.2 million in construction loans, partially offset by net decreases of $165.1 million in consumer loans, $120.1 million in multi-family mortgage loans, $92.1 million in residential mortgage loans and $304,000 in commercial loans.

Commercial real estate, commercial and construction loans represented 84.1% of the total loan portfolio at December 31, 2021, compared to 81.8% at December 31, 2020.

Commercial loans, consisting of commercial real estate, multi-family, construction and commercial loans, totaled $8.06 billion, accounting for 84.1% of the loan portfolio at December 31, 2021, compared to $8.05 billion, or 81.8% of the loan portfolio at December 31, 2020.

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The Company’s gross commitments and outstanding balances as a participant in SNCs were $167.1 million and $78.5 million, respectively, at December 31, 2021.

At December 31, 2020, one SNC relationship was classified as

Our share of the gross commitments and outstanding balances for this substandard SNC relationship totaled $10.4 million.

At December 31, 2021, no SNC relationships were classified as substandard or worse.

The Company had outstanding junior lien mortgages totaling $139.4 million at December 31, 2021.

Of this total, 17 loans totaling $1.2 million were 90 days or more delinquent, and were allocated total loss reserves of $22,590.

At December 31, 2020, the allowance for credit losses on loans was $101.5 million, representing 1.03% of total loans, or 1.09% of total loans excluding PPP, compared to $55.5 million, or 0.76% of total loans, prior to the adoption of CECL at December 31, 2019.

The allowance for credit losses on loans increased $45.9 million for the year ended December 31, 2020.

The increase in the allowance for credit losses was attributable to elevated provisions for credit losses primarily due to the current weak economic forecast attributable to the COVID-19 pandemic and the adoption of CECL, along with $15.5 million and $13.6 million additions to the allowance for credit losses for loans and PCD loans, respectively, related to the acquisition of the SB One loan portfolio.

The Company incurred net charge-offs of $5.3 million, compared to net-charge-offs of $13.1 million for the prior year.

Of this total, nine loans totaling $376,900 were 90 days or more delinquent, and were allocated total loss reserves of $5,415.

At December 31, 2021, the Company’s allowance for credit losses related to the loan portfolio was 0.84% of total loans, compared to 1.03% of total loans at December 31, 2020.

For the year ended December 31, 2021, the Company recorded a negative provision of $24.3 million for credit losses related to loans, compared to a $29.7 million provision for year ended December 31, 2020.

The Company had net recoveries of $3.6 million for the year ended December 31, 2021, compared to net charge-offs of $5.3 million in 2020.

The reduction in provision for credit losses for the year ended December 31, 2021, compared to the same period in the prior year, was primarily the result of an improved economic forecast and improved asset quality.

The net recoveries realized for the year ended December 31, 2021 further contributed to the negative provision for credit losses in the period.

Total non-performing loans at December 31, 2021 were $48.0 million, or 0.50% of total loans, compared with $87.1 million, or 0.89% of total loans at December 31, 2020.

The increase in non-performing loans in 2020 reflects the effects of the protracted duration of the pandemic and related government response, and the attendant increased uncertainty of affected borrowers’ ability to repay all contractually due principal and interest.

The decrease in non-performing loans in 2021 reflects the ongoing economic recovery from the depths of the pandemic recession as improving economic conditions and historically low interest rates positively affected borrowers’ ability to repay contractually due principal and interest payments.

At December 31, 2021, impaired loans totaled $52.3 million with related specific reserves of $4.3 million, compared with impaired loans totaling $86.0 million with related specific reserves of $9.0 million at December 31, 2020.

Within total impaired loans, there were $34.2 million of loans for which the present value of expected future cash flows or current collateral valuations exceeded the carrying amounts of the loans and for which no specific reserves were required in accordance with GAAP.

Non-performing commercial mortgage loans increased $26.7 million to $32.0 million at December 31, 2020, from $5.3 million at December 31, 2019.

Non-performing commercial mortgage loans decreased $15.1 million to $16.9 million at December 31, 2021, from $32.0 million at December 31, 2020.

At December 31, 2021, non-performing commercial mortgage loans consisted of 14 loans at December 31, 2021.

Of these 14 loans, 7 loans totaling $9.0 million were PCD loans.

The largest non-performing commercial mortgage loan was an $11.5 million loan secured by a first mortgage on a property located in Hasbrouck Heights, New Jersey.

The largest non-performing commercial mortgage loan was a $6.7 million loan secured by a first mortgage on a property located in Woodside, New York.

This loan is currently paying in accordance with its restructured terms.

Non-performing commercial loans increased $17.0 million to $42.1 million at December 31, 2020, from $25.2 million at December 31, 2019.

Non-performing commercial loans at December 31, 2020 consisted of consisted of 69 loans, of which 24 loans were under 90 days past due and still accruing.

Non-performing commercial loans decreased $21.5 million to $20.6 million at December 31, 2021, from $42.1 million at December 31, 2020.

Non-performing commercial loans at December 31, 2021 consisted of 51 loans, of which 31 loans were under 90 days accruing.

Of these non-performing commercial loans, 21 were PCD loans totaling $6.4 million.

The largest non-performing commercial loan relationship was a Shared National Credit ("SNC") relationship, which consisted of three loans to a restaurant group with our share totaling outstanding balances of $10.4 million at December 31, 2020.

The largest non-performing commercial loan relationship consisted of four loans with total outstanding balances of $3.2 million at December 31, 2021.

All of these loans are unsecured/non-real estate secured.

These loans are currently not paying in accordance with their restructured terms.

A new modification/forbearance agreement is currently being negotiated.

Non-performing construction loans totaled $1.4 million at December 31, 2020.

These loans are currently paying in accordance with their restructured terms.

Non-performing construction loans increased $973,000 to $2.4 million at December 31, 2021.

Non-performing construction loans at December 31, 2021 consisted of two PCD loans.

There were $1.4 million non-performing construction loans at December 31, 2020.

Non-performing multi-family mortgage loans totaled $439,000 at December 31, 2021.

There were no non-performing multi-family mortgage loans at December 31, 2020.

At December 31, 2021, the Company held $8.7 million of foreclosed assets, compared with $4.5 million at December 31, 2020.

Foreclosed assets are carried at the lower of the outstanding loan balance at the time of foreclosure or fair value, less estimated costs to sell.

During the year ended December 31, 2020, there were three additions to foreclosed assets with an aggregate carrying value of $2.6 million and 12 properties sold with an aggregate carrying value of $2.5 million and valuation charges of $693,000.

Foreclosed assets acquired from SB One totaled $2.4 million.

During the year ended December 31, 2021, there were four additions to foreclosed assets with an aggregate carrying value of $8.0 million and ten properties sold with an aggregate carrying value of $2.6 million and valuation charges of $1.2 million.

Non-performing assets totaled $56.8 million, or 0.41% of total assets at December 31, 2021, compared to $91.6 million, or 0.71% of total assets at December 31, 2020.

If the non-accrual loans had performed in accordance with their original terms, interest income would have increased by $3.2 million during the year ended December 31, 2020.

If the non-accrual loans had performed in accordance with their original terms,

interest income would have increased by $1.2 million during the year ended December 31, 2021.

The amount of cash basis interest income that was recognized on impaired loans during the year ended December 31, 2021 was not material.

Total deposits increased $1.40 billion for the year ended December 31, 2021 to $11.23 billion.

The increase in total deposits consisted of $1.76 billion of deposits acquired from SB One and additional net deposit growth of $977.4 million.

Total core deposits, consisting of savings and demand deposit accounts, increased $2.38 billion to $8.74 billion at December 31, 2020, while total time deposits increased $360.1 million to $1.09 billion at December 31, 2020.

The increase in core deposits for the year ended December 31, 2020 was comprised of a $787.2 million increase in non-interest bearing demand deposits, a $716.2 million increase in interest bearing demand deposits, a $507.2 million increase in money market deposits and a $364.4 million increase in savings deposits.

In addition to the deposit relationships acquired from SB One, core deposit growth benefited from the deposit of PPP loan proceeds and government stimulus payments.

The increase in time deposits was largely

the result of $577.3 million acquired from SB One, partially offset by the outflow of time deposits totaling $217.2 million.

Core deposits represented 88.9% of total deposits at December 31, 2020, compared to 89.7% at December 31, 2019.

Borrowed funds increased $50.8 million for the year ended December 31, 2020, to $1.18 billion.

The increase for the period was primarily due to $201.6 million of borrowings acquired from SB One, partially offset by the replacement of wholesale funding with deposits.

Total savings and demand deposit accounts increased $1.80 billion to $10.54 billion at December 31, 2021, while total time deposits decreased $401.7 million to $692.5 million at December 31, 2021.

The increase in total savings and demand deposit accounts for the year ended December 31, 2021 was largely attributable to a $913.6 million increase in interest bearing demand deposits, as the Company shifted $450.0 million of maturing Federal Home Loan Bank of New York ("FHLB") borrowings into lower-costing brokered demand deposits, a $424.8 million increase in non-interest bearing demand deposits, which partially benefited from deposits retained from activity associated with PPP loans and stimulus funding, a $347.1 million increase in money market deposits and a $112.4 million increase in savings deposits.

The decrease in time deposits was primarily due to the outflow of brokered time deposits, combined with additional maturities of longer-term retail time deposits.

Borrowed funds decreased $549.2 million for the year ended December 31, 2021, to $626.8 million.

The decrease for the period was largely due to the maturity and replacement of FHLB borrowings with lower-costing brokered deposits and the net inflow of retail deposits.

Borrowed funds represented 4.5% of total assets at December 31, 2021, a decrease from 9.1% at December 31, 2020.

Stockholders’ equity increased $206.0 million during the year ended December 31, 2020 to $1.62 billion, primarily due to the issuance of 12,788,370 shares of common stock related to the acquisition of SB One, net income earned for the period and an increase in unrealized gains on available for sale debt securities, partially offset by dividends paid to stockholders, the charge to equity of $8.3 million, net of tax, related to the adoption of CECL effective January 1, 2020 to establish initial allowances against credit losses on loans and off-balance sheet credit exposures, and common stock repurchases.

For the year ended December 31, 2020, common stock repurchases totaled 1.3 million shares at an average cost of $16.59, of which 49,461 shares, at an average cost of $19.69, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation.

At December 31, 2020, 262,927 shares remained eligible for repurchase under the current authorization.

Following completion of the current authorization, a new authorization will commence for the repurchase of up to 5% of the outstanding shares of the Company’s common stock, or approximately 3.9 million shares.

Stockholders’ equity increased $77.3 million during the year ended December 31, 2021 to $1.70 billion, primarily due to net income earned for the year, partially offset by dividends paid to stockholders, common stock repurchases and a decrease in unrealized gains on available for sale debt securities.

For the year ended December 31, 2021, common stock repurchases totaled 965,223 shares at an average price per share of $22.43, of which 44,078 shares, at an average price per share of $21.81, were made in connection with withholding to cover income taxes on the vesting of stock-based compensation.

At December 31, 2021, 3.2 million shares remained eligible for repurchase under the current authorization.

Comparison of Operating Results for the Years Ended December 31, 2021 and December 31, 2020

Net income for the year ended December 31, 2021 was $167.9 million, compared to $97.0 million for the year ended December 31, 2020.

Basic and diluted earnings per share were $2.20 and $2.19 per share, respectively, compared to basic and diluted earnings per share of $1.39 for the year ended December 31, 2020.

Earnings for the year ended December 31, 2021 were favorably impacted by growth in average interest earning assets, including assets acquired in the July 31, 2020 merger with SB One Bancorp ("SB One") and the deployment of liquidity arising from increased deposits, into earning assets.

Earnings for the year ended December 31, 2021 further benefited from a negative provision for credit losses attributable to an improved economic forecast and improved asset quality.

The Company recorded a $24.3 million negative provision for the year ended December 31, 2021, compared to a $29.7 million provision for credit losses for 2020.

Net Interest Income.

Net interest income increased $53.5 million to $366.0 million for 2021, from $312.6 million for 2020.

The interest rate spread increased one basis point to 2.89% for 2021, from 2.88% for 2020.

The net interest margin decreased five basis points to 3.00% for 2021, compared to 3.05% for 2020.

For the year ended December 31, 2021, the decrease in net interest margin was primarily attributable to increases in the average balance of both lower-yielding cash and available for sale debt securities portfolios, combined with the downward repricing of certain adjustable rate loans.

This decrease was partially offset by the inflow of lower-costing core deposits, along with an increase in the accelerated recognition of fees related to the forgiveness of PPP loans in 2021.

For the year ended December 31, 2021, fees related to the forgiveness of PPP loans totaled $11.3 million, which was recognized in interest income, compared to $3.8 million for the year ended December 31, 2020.

Interest income increased $39.0 million to $402.3 million for 2021, compared to $363.3 million for 2020.

The increase in interest income was attributable to interest income from the SB One loan portfolio, partially offset by the downward repricing of certain adjustable rate assets and lower rates on newly originated loans.

Average interest-earning assets increased $1.94 billion to $12.18 billion for 2021, compared to $10.24 billion for 2020.

The increase in average earning assets was largely due to a $1.19 billion increase in average outstanding loan balances to $9.56 billion for 2021, attributable to the loan portfolios acquired from SB One and PPP loan originations.

The yield on interest-earning assets decreased 25 basis points to 3.30% for 2021, from 3.55% for 2020.

The weighted average yield on total loans decreased five basis points to 3.82% for 2021 and the weighted average yield on available for sale debt securities decreased 68 basis points to 1.40% for 2021, from 2.08% for 2020.

The weighted average yield on FHLBNY stock decreased to 5.48% for 2021, compared to 6.00% for 2020.

Interest expense decreased $14.4 million to $36.3 million for 2021, from $50.7 million for 2020.

The decrease in interest expense was primarily attributable to a decrease in the cost of interest-bearing liabilities, partially offset by an increase in average interest-bearing deposits.

The average rate paid on interest-bearing liabilities decreased 26 basis points to 0.41% for

2021, compared to 2020.

The average rate paid on interest-bearing deposits decreased 20 basis points to 0.33% for 2021, from 0.53% for 2020.

The average rate paid on borrowings decreased 27 basis points to 1.09% for 2021, from 1.36% for 2020.

The average rate paid on subordinated debentures assumed in the SB One acquisition was 4.79% for 2021.

Average interest-bearing deposits increased $1.70 billion to $8.08 billion for 2021, from $6.38 billion for 2020.

The average balance of interest-bearing liabilities increased $1.28 billion to $8.89 billion for 2021, compared to $7.61 billion for 2020.

Within average interest-bearing deposits, average interest-bearing core deposits increased $1.70 billion to $7.21 billion for 2021, compared with 2020.

Average non-interest bearing demand deposits increased $558.9 million to $2.54 billion for 2021, from $1.98 billion for 2020.

Average outstanding borrowings decreased $438.1 million to $789.8 million for 2021, compared to 2020.

Average outstanding subordinated debentures for 2021 was $24.8 million.

Provision for Credit Losses .

Provisions for credit losses are charged to operations in order to maintain the allowance for credit losses at a level management considers necessary to absorb projected credit losses that may arise over the expected term of each loan in the portfolio.

In determining the level of the allowance for credit losses, management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and a reasonable and supportable forecast.

The amount of the allowance is based on estimates, and the ultimate losses may vary from such estimates as more information becomes available or later events change.

Management assesses the adequacy of the allowance for credit losses on a quarterly basis and makes provisions for credit losses, if necessary, in order to maintain the valuation of the allowance.

For the year ended December 31, 2021, the Company recorded a $24.3 million negative provision for credit losses on loans, compared to a $29.7 million provision for 2020.

The Company, f or the year ended December 31, 2021, had net loan recoveries of $3.6 million, compared to net charge-offs of $5.3 million for 2020.

Total charge-offs for the year ended December 31, 2021 were $5.5 million, compared to $7.9 million for the year ended December 31, 2020.

Recoveries for the year ended December 31, 2021, were $9.0 million, compared to $2.6 million for the year ended December 31, 2020.

The reduction in provision for credit losses for the year ended December 31, 2021, compared to the prior year, was primarily the result of an improved economic forecast and improved asset quality.

The net recoveries realized for the year ended December 31, 2021 further contributed to the negative provision for credit losses in the year.

Non-Interest Income .

For the year ended December 31, 2021, non-interest income totaled $86.8 million, an increase of $14.4 million from 2020.

Insurance agency income totaled $10.2 million, an increase of $6.3 million for the year ended December 31, 2021, compared to the same period in 2020, resulting from the prior year acquisition of SB One.

Fee income increased $6.1 million to $30.0 million, compared to the same period in 2020, largely due to a $3.8 million increase in prepayment fees on commercial loans, a $973,000 increase in loan-related fee income, a $743,000 increase in non-deposit investment fee income and a $601,000 increase in deposit related fee income.

These increases were partially offset by a $362,000 decrease in debit card revenues.

The increases in fee income are partially attributable to the addition of the SB One customer base as well as a recovering economy compared to the severe negative effects that COVID-19 had on consumer and business activities in the prior year.

The decrease in debit card revenue was largely due to interchange transaction fee limitations imposed by the Durbin amendment, which became effective for the Company on July 1, 2021, mitigated by an increase in transaction fees related to the SB One customer base.

Wealth management income increased $5.0 million to $30.8 million for the year ended December 31, 2021, compared to $25.7 million for the same period in 2020, primarily due to an increase in the market value of assets under management as a result of strong equity market performance and new business generation.

Additionally, BOLI income increased $1.4 million to $7.9 million for the year ended December 31, 2021, compared to the same period in 2020, primarily due to an increase in benefit claims, additional income related to the BOLI assets acquired from SB One and higher equity valuations.

Partially offsetting these increases, other income decreased $5.1 million to $7.7 million for the year ended December 31, 2021, primarily due to an $8.2 million decrease in net fees on loan-level interest rate swap transactions, an $884,000 decrease in net gains on the sale of fixed assets and a $334,000 decrease in net gains on sale of foreclosed real estate, partially offset by income recognized from a $3.4 million reduction in the contingent consideration related to the earn-out provisions of the 2019 purchase of Tirschwell & Loewy, Inc.

by Beacon Trust Company.

Non-Interest Expense.

Non-interest expense for the year ended December 31, 2021 was $250.1 million, an increase of $22.3 million from 2020.

Compensation and benefits expense increased $12.5 million to $143.4 million for the year ended December 31, 2021, compared to $130.9 million for the year ended December 31, 2020.

This increase was primarily due to increases in salary expense and employee medical benefits associated with the addition of former SB One employees, combined with an increase in the accrual for incentive compensation, company-wide annual merit increases and an increase in stock-based compensation, partially offset by a decrease in severance expense.

Net occupancy costs increased $5.8 million to $32.9 million for the year ended December 31, 2021, compared to 2020, mainly due to increases in rent, depreciation, utilities and maintenance expenses related to the facilities acquired from SB One, along with an increase in snow removal costs incurred earlier in the year.

FDIC insurance expense increased $3.1 million to $6.3 million for year ended December 31, 2021, compared to $3.1 million for 2020, primarily due to an increase in the insurance assessment rate and an increase in total assets subject to assessment, including assets acquired from SB One, along with the receipt of the small bank assessment credit in the

prior year that was not available in 2021.

Other operating expenses increased $2.4 million to $38.6 million for the year ended December 31, 2021, compared to $36.2 million for the year ended December 31, 2020, largely due to a valuation adjustment on foreclosed assets and increases in debit card maintenance, insurance and business development expenses, as a result of the addition of SB One, partially offset by non-recurring merger related expenses incurred in the prior year.

Partially offsetting these increases in non-interest expense, data processing costs decreased $1.0 million to $19.8 million, compared with 2020, primarily due to non-recurring core system conversion costs related to the SB One acquisition in the prior year, partially offset by increases in software subscription service expense and online banking costs.

Additionally, advertising expense decreased $449,000 for the year ended December 31, 2021, compared with 2020, mainly due to the curtailment of certain product marketing campaigns in the current year.

Income Tax Expense .

For the year ended December 31, 2021, the Company’s income tax expense was $59.2 million, compared with $30.6 million for 2020.

The Company’s effective tax rate was 26.1% for the year ended December 31, 2021, compared with 24.0% for the year ended December 31, 2020.

The increase in tax expense and the effective tax rate for the year ended December 31, 2021, compared with the same period in 2020, was partially attributable to increases in taxable income and the reduced proportion of income derived from tax exempt sources to total pre-tax income.

Further, upon the filing of the 2020 state income tax returns in the fourth quarter of 2021, a discrete item resulting in additional tax expense was recorded related to the apportionment of income subject to state income taxes.

Comparison of Operating Results for the Years Ended December 31, 2020 and December 31, 2019

Net income for the year ended December 31, 2020 was $97.0 million, compared to $112.6 million for the year ended December 31, 2019.

Basic and diluted earnings per share were $1.39 for the year ended December 31, 2020, compared to basic and diluted earnings per share of $1.74 for 2019.

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Interest expense decreased $22.8 million to $50.7 million for 2020, from $73.5 million for 2019.

The decrease in interest expense was primarily attributable to a decrease in the cost of interest-bearing liabilities, partially offset by an increase in average interest-bearing deposits.

The decrease in interest expense was primarily attributable to a decrease in the cost of interest-bearing liabilities, partially offset by an increase in

average interest-bearing deposits.

The average rate paid on interest-bearing liabilities decreased 41 basis points to 0.67% for 2020, compared to 2019.

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Provision for Credit Losses .

The amount of the allowance is based on estimates, and the ultimate losses may vary from such estimates as more information becomes available or later events change.

Management assesses the adequacy of the allowance for credit losses on a quarterly basis and makes provisions for credit losses, if necessary, in order to maintain the valuation of the allowance.

The provision for loan losses was $29.7 million in 2020, compared to $13.1 million in 2019.

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Other operating expenses increased $2.4 million to $36.2 million for the year ended December 31, 2020, compared to $33.8 million for the year ended December 31, 2019.

This increase was largely due to increases in consulting and legal expenses primarily related to the SB One acquisition, an increase in debit card maintenance expense and a market valuation

adjustment on foreclosed real estate, partially offset by a $2.8 million prior year estimated fair value adjustment of the contingent consideration related to the T&L acquisition.

This increase was largely due to increases in consulting and legal expenses primarily related to the SB One acquisition, an increase in debit card maintenance expense and a market valuation adjustment on foreclosed real estate, partially offset by a $2.8 million prior year estimated fair value adjustment of the contingent consideration related to the T&L acquisition.

FDIC insurance expense increased $1.8 million to $3.1 million for year ended December 31, 2020, compared to $1.3 million for the same period in 2019, largely due to the receipt of the small bank assessment credit in the prior year, the addition of SB One and increases in both the insurance assessment rate and total assets subject to assessment.

For the year ended December 31, 2020, credit loss expense for off-balance sheet credit exposures totaled $1.8 million based upon the January 1, 2020 adoption of CECL and the subsequent changes in loss factors due to changes in the economic forecast, the pipeline of loans approved awaiting closing and the availability on committed lines of credit.

Additionally, net occupancy costs increased $1.2 million to $27.1 million for the year ended December 31, 2020, compared to 2019, primarily due to an increase in rent expense, a portion of which was related to the addition of SB One facilities, and a full year of the T&L acquisition, while the amortization of intangibles increased $685,000 for the year ended December 31, 2020, compared with 2019, mainly due to an increase in the customer relationship intangible amortization attributable to the acquisition of SB One Insurance Agency, partially offset by scheduled reductions in amortization.

facilities, and a full year of the T&L acquisition, while the amortization of intangibles increased $685,000 for the year ended December 31, 2020, compared with 2019, mainly due to an increase in the customer relationship intangible amortization attributable to the acquisition of SB One Insurance Agency, partially offset by scheduled reductions in amortization.

Income Tax Expense .

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The decrease in tax expense and the higher effective tax rate for the year ended December 31, 2020 was largely the result of corresponding changes in taxable income, while the changes in the effective tax rates for the year ended December 31, 2020 compared with the same period in 2019 were primarily due to the proportion of income derived from tax exempt sources to total pre-tax income.

Comparison of Operating Results for the Years Ended December 31, 2019 and December 31, 2018

Net income for the year ended December 31, 2019 was $112.6 million, compared to $118.4 million for the year ended December 31, 2018.

Basic and diluted earnings per share were both $1.74 for the year ended December 31, 2019, compared to basic and diluted earnings per share of $1.82 for 2018.

For the year ended December 31, 2019, the Company’s earnings were adversely impacted by a $2.0 million, or $0.03 per basic and diluted share, net of tax expense, increase in the estimated fair value of the contingent consideration related to the April 1, 2019 acquisition of T&L.

The earn-out of this contingent consideration is based upon T&L achieving certain revenue growth and retention targets over a three-year period from the date of acquisition.

Based upon recent performance and improved projections for the remaining measurement period, an increase to the fair value of the contingent liability was warranted.

At December 31, 2019, the contingent liability was $9.4 million, with maximum potential future payments totaling $11.0 million.

For the year ended December 31, 2018, a non-recurring $1.9 million tax benefit was recorded stemming from the Company's completion of a cost segregation study that assigned shorter taxable lives to certain fixed assets.

This benefit contributed $0.03 per basic and diluted share for the year ended December 31, 2018.

In addition, the Company realized a $1.6 million, or $0.02 per share, net of tax gain on the sale of Visa Class B common shares in the fourth quarter of 2018.

Net Interest Income.

Net interest income decreased $2.7 million to $298.0 million for 2019, from $300.7 million for 2018.

The interest rate spread decreased 10 basis points to 3.10% for 2019, from 3.20% for 2018.

The net interest margin decreased four basis points to 3.35% for 2019, compared to 3.39% for 2018.

For the year ended December 31, 2019, the decrease in net interest income was primarily due to compression in the net interest margin as the increase in the cost of the Company’s average interest-bearing deposits and borrowings outpaced the improvement in the yield on average total loans.

Net interest income for the year ended December 31, 2019 was aided by the recognition of $2.2 million in interest income, in the second quarter of 2019, upon the prepayment of loans which had previously been non-accruing.

Interest income increased $11.6 million to $371.5 million for 2019, compared to $359.8 million for 2018.

The increase in interest income was attributable to an increase in average earning asset balances and an increase in the yield on average interest-earning assets.

Average interest-earning assets increased $29.4 million to $8.89 billion for 2019, compared to $8.87 billion for 2018.

The increase in average earning assets was largely attributable to a $47.8 million increase in the average balance of the total investment portfolio.

This was partially offset by an $18.3 million decrease in average outstanding loan balances to $7.19 billion for 2019 from $7.21 billion for 2018.

The yield on interest-earning assets increased 12 basis points to 4.18% for 2019, from 4.06% for 2018, mainly due to increases in the weighted average yields on total loans and the available for sale debt securities portfolio, partially offset by a decrease in FHLBNY stock yield.

The weighted average yield on total loans increased 15 basis points to 4.51% for 2019 and the weighted average yield on available for sale debt securities increased seven basis points to 2.56% for 2019, from 2.49% for 2018.

The weighted average yield on FHLBNY stock decreased to 6.62% for 2019, compared to 6.78% for 2018.

Interest expense increased $14.3 million to $73.5 million for 2019, from $59.2 million for 2018.

The increase in interest expense was primarily attributable to an increase in the cost of interest-bearing liabilities and an increase in average interest-bearing deposits, partially offset by a decline in average borrowings.

The average rate paid on interest-bearing liabilities

increased 22 basis points to 1.08% for 2019, compared to 2018.

The average rate paid on interest-bearing deposits increased 26 basis points to 0.84% for 2019, from 0.58% for 2018.

The average rate paid on borrowings increased 25 basis points to 2.10% for 2019, from 1.85% for 2018.

Average interest-bearing deposits increased $125.1 million to $5.44 billion for 2019, from $5.32 billion for 2018.

The average balance of interest-bearing liabilities decreased $74.2 million to $6.78 billion for 2019, compared to $6.85 billion for 2018.

Within average interest-bearing deposits, average time deposits increased $129.7 million for 2019, compared with 2018, while average interest-bearing core deposits decreased $4.6 million to $4.64 billion for 2019, compared with 2018.

Average non-interest bearing demand deposits increased $39.0 million to $1.50 billion for 2019, from $1.46 billion for 2018.

Average outstanding borrowings decreased $199.3 million to $1.34 billion for 2019, compared to 2018.

Provision for Loan Losses .

The provision for loan losses was $13.1 million in 2019, compared to $23.7 million in 2018.

The decrease in the provision for loan losses was primarily attributable to a $14.9 million loss related to a commercial borrower that filed a Chapter 7 petition in bankruptcy on March 27, 2018 for a liquidation of assets.

Net charge-offs for 2019 were $13.1 million, compared to $28.3 million for 2018.

Total charge-offs for the year ended December 31, 2019 were $15.0 million, compared to $30.0 million for the year ended December 31, 2018.

Recoveries for the year ended December 31, 2019, were $1.9 million, compared to $1.7 million for the year ended December 31, 2018.

The allowance for loan losses at December 31, 2019 was $55.5 million, or 0.76% of total loans, compared to $55.6 million, or 0.77% of total loans, at December 31, 2018.

At December 31, 2019, non-performing loans as a percentage of total loans were 0.55%, compared to 0.35% at December 31, 2018.

Non-performing assets as a percentage of total assets were 0.44% at December 31, 2019, compared to 0.28% at December 31, 2018.

At December 31, 2019, non-performing loans were $40.2 million, compared to $25.7 million at December 31, 2018, and non-performing assets were $42.9 million at December 31, 2019, compared to $27.3 million at December 31, 2018.

Non-Interest Income .

For the year ended December 31, 2019, non-interest income totaled $63.8 million, an increase of $5.1 million, compared to the same period in 2018.

Wealth management income increased $4.5 million to $22.5 million for the year ended December 31, 2019, compared to $18.0 million for the same period in 2018, primarily due to fees earned from assets under management acquired in the T&L transaction, partially offset by a decrease in managed mutual fund fees.

Other income increased $1.7 million to $6.6 million for the year ended December 31, 2019, primarily due to a $2.6 million increase in net fees on loan-level interest rate swap transactions, partially offset by decreases of $659,000 and $353,000 in net gains on the sale of foreclosed real estate and net gains on the sale of loans, respectively.

Income from BOLI increased $783,000 to $6.3 million for the year ended December 31, 2019, compared to the same period in 2018, due to an increase in benefit claims and greater equity valuations, while fee income increased $237,000 to $28.3 million, compared to the same period in 2018, largely due to a $1.0 million increase in prepayment fees on commercial loans, partially offset by a $264,000 decrease in debit card revenue, a $144,000 decrease in income from non-deposit investment products and a $125,000 decrease in deposit related fee income.

Partially offsetting increases in other income, net gains on securities transactions decreased $2.1 million for the year ended December 31, 2019, due to the sale of Visa Class B common shares in 2018.

Non-Inter est Expense .

Non-interest expense for the year ended December 31, 2019 was $201.6 million, an increase of $9.8 million from 2018.

Compensation and benefits expense increased $5.4 million to $116.8 million for the year ended December 31, 2019, compared to $111.5 million for the year ended December 31, 2018.

This increase was due to additional compensation expense arising from the T&L acquisition, increased salary expense related to annual merit increases and additions of risk management and compliance professionals, along with increases in the accrual for incentive compensation and stock-based compensation.

Other operating expenses increased $2.8 million for the year ended December 31, 2019, compared to $31.1 million for the year ended December 31, 2018.

This increase was primarily due to a $2.8 million increase in the estimated fair value of the contingent consideration related to the T&L purchase transaction.

Data processing costs increased $2.2 million to $16.8 million for the year ended December 31, 2019, compared with 2018, primarily due to increases in software subscription service expense and implementation costs.

Additionally, net occupancy costs increased $839,000, to $25.9 million for the year ended December 31, 2019, compared to 2018, primarily due to an increase in rent expense, a portion of which was related to the T&L acquisition, while the amortization of intangibles increased $613,000 for the year ended December 31, 2019, compared with 2018, largely due to an increase in the customer relationship intangible amortization attributable to the acquisition of T&L.

Partially offsetting these increases in non-interest expense, FDIC insurance expense decreased $2.2 million to $1.3 million for year ended December 31, 2019, compared to $3.5 million for the same period in 2018, largely due to the receipt of the small bank assessment credit for the second and third quarters of 2019 and the discontinuance of the FICO assessment.

Income Tax Expense .

For the year ended December 31, 2019, the Company’s income tax expense was $34.5 million, compared with $25.5 million, for the same period in 2018.

The Company’s effective tax rate was 23.4% for the year ended December 31, 2019, compared with 17.7% for the year ended December 31, 2018.

The increase in tax expense and the higher effective tax rates for the year ended December 31, 2019 were primarily attributable to the effects of a technical bulletin issued by the New Jersey Division of Taxation in the second quarter of 2019 that specified treatment of real estate investment trusts in connection with combined reporting for New Jersey corporate business tax purposes.

For the year ended December 31, 2018,

tax expense and the effective tax rate were favorably impacted by a non-recurring $1.9 million tax benefit related to the Company's completion of a cost segregation study that assigned shorter taxable lives to select fixed assets.

Liquidity and Capital Resources

Liquidity refers to the Company’s ability to generate adequate amounts of cash to meet financial obligations to its depositors, to fund loans and securities purchases, deposit outflows and operating expenses.

Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of investments, cash flows from mortgage-backed securities and the ability to borrow funds from the FHLBNY and approved broker-dealers.

Sources of funds include scheduled amortization of loans, loan prepayments, scheduled maturities of unpledged investments, cash flows from mortgage-backed securities and the ability to borrow funds from the FHLBNY and approved broker-dealers.

Cash flows from loan payments and maturing investment securities are fairly predictable sources of funds.

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Loan originations and purchases totaled $3.52 billion for the year ended December 31, 2021, compared to $3.50 billion for the year ended December 31, 2020.

Purchases for the investment portfolio totaled $298.1 million for the year ended December 31, 2020, compared to $137.3 million for the year ended December 31, 2019.

Purchases for the investment portfolio totaled $1.44 billion for the year ended December 31, 2021, compared to $298.1 million for the year ended December 31, 2020.

At December 31, 2021, the Bank had outstanding loan commitments to borrowers of $2.05 billion, including undisbursed home equity lines and personal credit lines of $252.9 million.

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A bank is considered to be well-capitalized if it has a leverage (Tier 1) capital ratio of at least 5.00% and a total risk-based capital ratio of at least 10.00%.

Off-Balance Sheet and Contractual Obligations

Off-balance sheet and contractual obligations as of December 31, 2020, are summarized below:

Payments Due by Period

(In thousands)

Total Less than

1-3 years 3-5 years More than

Off-Balance Sheet:

Long-term commitments $ 1,959,425 $ 868,907 $ 665,900 $ 151,161 $ 273,457

Letters of credit 32,471 30,830 1,191 25 425

Total off-balance sheet 1,991,896 899,737 667,091 151,186 273,882

Contractual Obligations:

Certificate of deposits 1,094,174 886,019 153,113 54,544 498

Total contractual obligations 1,094,174 886,019 153,113 54,544 498

Total $ 3,086,070 $ 1,785,756 $ 820,204 $ 205,730 $ 274,380

Off-balance sheet commitments consist of unused commitments to borrowers for term loans, unused lines of credit and outstanding letters of credit.

Total off-balance sheet obligations were $1.99 billion at December 31, 2020, an increase of $519.0 million, or 35.2%, from $1.47 billion at December 31, 2019, largely due to the SB One acquisition.

Total off-balance sheet obligations were $2.05 billion at December 31, 2021, an increase of $62.6 million, or 3.1%, from $1.99 billion at December 31, 2020.

Contractual obligations consist of certificate of deposit liabilities.

Total certificate of deposits at December 31, 2020 were $1.09 billion, an increase of $360.1 million, compared to $734.0 million at December 31, 2019.

There was one security purchase of $1.0 million in 2020 which settled in January 2021, while for 2019, there was one security purchase for $500,000 which settled in 2020.

Total certificate of deposits at December 31, 2021 were $692.5 million, a decrease of $401.7 million, compared to $1.09 billion at December 31, 2020.

There were no security purchases in 2021 which settled in January 2022, while for 2020, there was one security purchase for $1.0 million which settled in 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis